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The gain from an investment is the profit on the sales proceeds of an asset.
When we talk about gains, or sometimes referred to as capital gains, there are basically 2 types:
- Realized gains
- Unrealized gains
Realized gains refer to profits that has been cashed out, and therefore realized.
For example, if a long term real estate investor bought a property a decade ago at $500,000 and sold it today for $900,000, assuming zero closing costs, the profit is the amount of $400,000.
This is a realized gain.
Unrealized gains refer to paper profits that look good in reports, but have yet to be realized.
If we take the previous example, this time the property has not yet been sold. Even though the house has appreciated 80% in value, the $400,000 are unrealized gains that only look good on paper.
If the home owner never sells the property, the profits will never become cash and continue to sit in the house as home equity.
Only when it is sold will the paper gains be realized and become real profits.
Take note that there will be tax implications for realizing gains.
Do speak to a qualified accountant for tax planning should you be unsure of what you are doing.